Contributing to the social good through corporate venturing
Corporate giants Amazon, Berkshire Hathaway, and J.P. Morgan announced a new, independent health care company in late January that will remain ‘free from profit-making incentives and constraints’ – a move that leverages their corporate reach to ensure long-term economic and social equality by offering low-cost medical care for millions of people. Separately, BlackRock CEO Larry Fink recently sent his annual letter to thousands of BlackRock’s portfolio CEOs, saying that ‘to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society’. As the world’s largest investment management firm with $6.3 trillion in assets under management, BlackRock certainly draws attention when it suggests how companies can deliver better financial performance.
This panel will discuss whether corporations can produce social good while operating within the bounds of market-based capitalism and whether corporate venturing is a good way to engage with the principle of giving back to society. They will outline innovative ways of producing social good such as launching corporate venture departments, crowdfunding platforms, mentorship programmes and angel networks for startups and scaleups. They will ask whether corporate venturing departments will encourage utilizing the idle capacity of corporations for veritable business activities where they collaborate with startups – and how such strategies might influence corporate innovation.
A new role for corporations in fostering innovation and developing new value chains
In 1919, Ford Motor Company founder Henry Ford advocated channelling his company’s revenue into investments that would benefit employees and fund business production, rather than provide returns for shareholders. However, Ford’s largest shareholders, John Francis Dodge and Horace Elgin Dodge, sued him for neglecting to make dividend payments.
Since 2013 the number of corporate investments in startups has nearly tripled – from 980 in 2013 to 2,795 in 2018, and their value has risen from $19 to $180 billion, according to GCV Analytics, a company that tracks corporate venturing deals.
Now in 2020, we will be discussing Ford’s proposal as a new way for corporations to empower innovation and support the startup culture, thus creating more jobs and more wealth and social justice. The panel will discuss how CEOs should position themselves in this trend, how to eliminate conflicts of interest between a company’s CV unit and a startup, how to create a working pipeline to engage outside innovative business startups with the corporation, and how to boost the value of venturing to the rest of the business so that investing in startups will be a meaningful response to both shareholders and society.
The increasing role of corporate venturing in entrepreneurs’ financial journey
Corporate venturing is the practice of directly investing corporate funds into external startup companies. This is usually done by large companies that wish to invest small, innovative startup firms. They do so through joint venture agreements and acquisition of equity stakes. The investing company may also provide the startup with management and marketing expertise, strategic direction, and/or a line of credit.
Corporate venturing strives to achieve goals both strategically and financially. A strategically driven corporate venture aims primarily to increase the sales and profits of the venturing company by making deals with startups that use new technologies, by entering new markets, by identifying acquisition targets, and accessing new resources. Financially-driven corporate ventures, on the other hand, invest in new companies for leverage. Both strategic and financial objectives are often combined to bring higher financial returns to investors.
This panel will discuss how startups can be funded by corporate venture capital at different stages of an entrepreneur’s financial journey – early stage financing, seed capital funding, expansion financing, initial public offerings and mergers and acquisitions. They will identify the value-added benefits of corporate ventures to startups in each step of the entrepreneurial journey.
A startup CEO + a multi-million-dollar corporation CEO = a better return of investment
Founding and growing an industry-transforming company is probably one of the hardest jobs anyone could ever do. There are no fixed rules for startups. Their mentors always seem to give them conflicting advice, and the books and blogs are so full of useful tips that it is hard to know what to prioritise. Sometimes startups find themselves staring into space wondering if they are working on the right things. Founders of startup businesses are entrepreneurs.
CEOs of multi-million-dollar corporates, on the other hand, do have fixed rules to follow, and they know exactly what they have to do. They come with a good financial package and a vast network that they have built over the years. But they are not founders of the corporations they lead. It is not uncommon for them to lack know-how about founding a company from scratch. CEOs are not entrepreneurs.
This panel will identify the pros and cons of these two very different types of CEO joining forces. How can we facilitate a knowledge transfer between these two very different types of CEO? How can CEOs prepare themselves to be qualified angel investors after they retire? How can they empower economies by investing in start-up businesses? How can they learn to be a qualified angel investor by taking minimum risk? How they can learn from the startup co-founders they invest in the basic principles of launching a company from scratch?
By working together across borders, with a common vision, and with these smart dynamics in mind, we are well placed to bring about positive change in the global economy
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